Grow up and pay back your debts

IF you’ve got a burning money question, or you want to win a fight with your hubby, shoot over to barefootinvestor.com and ask me a question.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

Q I’ve been with my fiancé for six years, and we have two kids. He has an $80k tax debt that’s about six years old, which he keeps ignoring. (I asked him to go bankrupt a long time ago, and we would have been done by now.)

I own our home — it’s worth $430k and the loan is $240k. His concern is that if he goes bankrupt they will try to take the house, even though it’s in my name — I’ve been a stay-at-home mum for the past four years, and he’s being paying the mortgage. Should we try refinancing to pay the tax debt, or go bankrupt?

Sharon

A Hi Sharon,

Your fiancé sounds scared, confused and overwhelmed about his financial situation. That explains why he’s behaving like a big freaking wuss.

Theoretically he could go bankrupt, and technically the assets that are in your name would not form part of the bankruptcy. Though honestly, what sort of a bloke stiffs his creditors on a technicality?

It’s time for your hubby-to-be to grow up and look after his family. He (and you) need to have two meetings: one with the ATO to try to negotiate a payment plan, and one with the bank to try and negotiate refinancing your home loan. When you sort this out you’ll still only owe $320,000 on your home. More importantly, he’ll be able to buy back his self-respect.

THE TWO-MILLION-DOLLAR QUESTION

Q I’d like to know what the correct rate of charge is for a fund manager who is looking after a portfolio of between $1.5 million and $2.5 million. And, following that, how would I go about finding the best fund manager — say the top 10 in Melbourne so I can work out who is best for me?

Leigh

A Let’s do the sums on a $2.5 million portfolio. Given the average annual fund charges 1.1 per cent of funds under management, this would be $27,500 a year in fees.

If your fees are anything like this, you’re probably paying Rolls-Royce prices for Kia Rio performance, given 75 per cent of Aussie funds underperform the index over the past five years, according to Standard & Poor’s.

My thinking is, why pay fees at all? You have enough money to build your own direct portfolio of shares. If you buy and hold, you’ll theoretically get your fees down to zero — less transaction costs. If you’re not confident doing it on your own, you could stick to our old faithfuls, AFIC and Argo Investments.

THE $200,000 IVF BABY

Q For the past 10 years we have been trying to create our family and have spent over $200,000 on IVF and adoption. Now, with the arrival of our beautiful son, we are finally “done”.

Now that we aren’t allocating every cent to adopting, we are probably able to save about $20k a year.

We owe approx. $150k on our home, $150k on our rental house, and $111k on our business. Should we pay off our loan, buy shares, or invest in a second rental property?

Natalie

A Hey Natalie,

Congratulations on the arrival of your son! Now comes the big cost: raising him for the next 21 years.

My bet is that you’ll be fine — after all, you’ve proven that you’re willing to make financial sacrifices for your family.

The first thing I’d do is get at least three months of living expenses in your Mojo account — make that your No. 1 goal.

After that you need to work out a clear plan on how to become debt-free. Depending on the strength of your business, one option would be to hit your home loan hard, and then focus on knocking out the rest of your debts.

STILL STAY AWAY FROM THE ASG

Q I went to an interview with the Australian Scholarships Group (ASG) on Friday to be part of their sales team. I then came across your article, which I believe was posted in 2010, with the heading “Stay Away from ASG”. I’m getting back to ASG next week to either accept or decline the offer. I was wondering if your thoughts had changed, or do they still stand?

Tina

A I chose a fairly definitive headline, don’t you think? It wasn’t ‘Stay Away from ASG … until 2014, at which Time I’m Sure They Will Have Cleaned up Their Act’.

I’d be interested in how they train you to justify their outrageous fees, and their fine print (which has left thousands of parents out of pocket). Good luck in the sales team — I’m sure they’ll pay very well.

HELP! WE’RE DESPERATE TO BUY

Q My girlfriend and I have $55k in savings and $10k in our Mojo, and we have no debt. However, we are struggling to get approval for a loan because in June, I started as a self-employed fully-licensed plumber. My girlfriend is a teacher who has an ongoing contract and takes home $1900 a fortnight.

We know we can more than afford to repay the payments on a $450,000 loan, but we can’t get approval. Living with the folks and with interest rates so low, we’re desperate to buy. Do you know anyone I can speak to who could possibly help us out?

Gary

A Hi Gary,

Don’t be desperate! It’s actually a good thing the banks won’t lend you the money — you’re not ready.

If I were you two, I’d stay with the folks for (at least) another year, and save up another $55,000. And, since you don’t have the stress of running a household, I’d devote a few nights a week to learning all you can about building a profitable business — it could eventually make you a millionaire.

In 12 months’ time you’ll be able to put down a 20 per cent deposit and avoid paying Lenders Mortgage Insurance (LMI). You’ll also have developed the financial skills to get the banker off your back quick.

Originally published as Grow up and pay back your debts